Collateral mortgages – The Banks’ next attempt to trap you

Collateral mortgages in Canada – what is this “bank speak” and how is it different from a conventional mortgage?  Good question!  Why should I care?  Great question!

What is a Canadian Collateral mortgage?

Collateral mortgages are a different type of mortgage registration whereby your mortgage funds are re-advanceable, this facilitates the lending of “all in one products” and mortgage/ line of credit combinations.  They are also non- assumable and non-transferable.  Beyond these differences they are very similar to the mortgage you have always known.

Why should I care about collateral mortgages?

You should care because Canadian banks have really taken a liking to these types of mortgages over the past couple of years.  Please remember the rule, If the bank is pushing something and making it seem very attractive and easy always ask:

“Is this good for me or the bank?“

In some cases where a client would like a mortgage/ line of credit combination, the answer is “it is good for both” , however Canadian collateral mortgage have become a huge client retention tool for the banks.  How? quite simply – upon renewal of your mortgage you have historically become a free agent, you can choose to move your mortgage to any other lender in exchange for the new lender covering the costs of the move in addition to typically offer very good rates and terms.  The collateral mortgage however, as I noted above, is non- transferrable which means you are not able to transfer this to a new lender upon renewal.  Your current lender has now made a barrier to you moving your mortgage away from them upon renewal.  This leaves them with the ability to offer you less than competitive rates and terms upon the expiration of your current term.

Who are the biggest offenders?

Currently National Bank and TD are the only two major banks in Canada that will only offer collateral mortgages.  National Bank has done this for several years, TD started this client retention program in October of 2010.  In addition to these offenders, Scotia Bank puts a huge push on their STEP program which is also a collateral loan.

Where one door closes another opens:

As some lenders contract the client options, others open them.  For our collateral mortgage clients, upon their renewal we now approve their renewals as refinances with no additional funds accessed unless they ask for them.  We then fund these mortgages through title insurance.  This approach is quick, affords best rates and terms, has minimal cost, and allows our clients the best options upon renewal of their collateral mortgages.

Please touch base with me directly regarding any Canadian collateral mortgage questions that you have.